G-20 Backs Accommodative Policy as Target Set of Higher GDP

European Central Bank President Mario Draghi said while central banks shouldn’t ignore spillovers from their policies and could communicate more, they are bound by their mandates and it’s also up to emerging markets to attend to their own structural weaknesses. Photographer: Ian Waldie/Bloomberg

Feb. 23 (Bloomberg) -- The Group of 20 nations said
monetary policy should remain accommodative for now in many
advanced economies and pledged a coordinated push to boost
growth by more than $2 trillion over the next five years.

The timing of stimulus pullback will depend on the outlook
for prices and growth, finance ministers and central bank
governors said in a statement after this weekend’s meeting in
Sydney. The group will aim to lift collective gross domestic
product by more than 2 percent above the trajectory implied by
current policies.

“We agree the global economy still faces weaknesses in
some areas of demand, and growth is still below the rates needed
to get our citizens back into jobs and meet their aspirations
for development,” the officials said. “Recent volatility in
financial markets, high levels of public debt, continuing global
imbalances and remaining vulnerabilities within some economies
highlight that important challenges remain to be managed.”

Nations including South Africa, Brazil and India have seen
their currencies rattled as the Federal Reserve begins to dial-back unprecedented stimulus measures, with emerging-market
officials urging the U.S. to consider the spillover effects of
its tapering. All central banks in the G-20 said today that
they’re committed to carefully calibrated and communicated
monetary policy, mindful of the effects on the global economy.

‘Clearly Aired’

The language on carefully calibrated policies echoes a
previous statement at the G-20 leaders summit in St. Petersburg,
Russia in September.

“Emerging market nations’ concerns were clearly aired in
the statement yet there is no indication the Fed will make the
slightest change to its current policy approach,” said Sean
Callow, a currency strategist at Westpac Banking Corp. in
Sydney.

European Central Bank President Mario Draghi said while
central banks shouldn’t ignore spillovers from their policies
and could communicate more, they are bound by their mandates and
it’s also up to emerging markets to attend to their own
structural weaknesses.

“There was widespread agreement both from industrial
countries and the emerging markets that we should make sure our
actions are appropriately calibrated and we should worry about
spillover effects,” Reserve Bank of India Governor Raghuram
Rajan, who had warned before the meetings of a breakdown in
global policy coordination due to tapering, said in an interview
in Sydney today.

China, India

Strengthening in developed economies and a slowdown in
growth in China, India, Brazil and elsewhere reverses the trend
that had shaped global expansion since 2008. The U.S. and fellow
industrial countries have put the onus on their emerging-nation
counterparts to get their houses in order to withstand
volatility, even as developing-market officials want policy
calibration.

The MSCI Emerging Markets Index has lost 4.3 percent so far
this year, its worst annual start since 2010.

The International Monetary Fund last week identified
prolonged market turmoil in developing nations and deflation in
the euro area as potential threats to a global economy it
currently expects to grow 3.7 percent this year. That would be
the most since 2011.

“Further action and international cooperation are
necessary to promote a more robust global recovery -- one that
is sustained and fosters healthy job creation -- and to
counteract actual and potential risks,” IMF Managing Director
Christine Lagarde said today.

No Complacency

The U.S., the U.K. and Japan’s economies are strengthening,
there is “continued solid growth” in China and many emerging
market nations, and resumption of expansion in the euro area,
the G-20 said. An earlier draft version did not specifically
mention China.

“Despite these recent improvements, the global economy
remains far from achieving strong, sustainable, and balanced
growth,” the G-20 said. “There is no room for complacency.”

As markets react to various policy transitions and country
circumstances, asset prices and exchange rates adjust, and this
might sometimes lead to excessive volatility that can be
damaging to growth, the G-20 nations said in the statement.

‘Fiscal Buffers’

“Exchange-rate flexibility can also facilitate the
adjustment of our economies,” according to the G-20 statement.
“Some economies may need to rebuild fiscal buffers where policy
space has eroded. We will consistently communicate our actions
to each other and to the public, and continue to cooperate on
managing spillovers to other countries, and to ensure the
continued effectiveness of global safety nets.”

The G-20 officials said they will develop new measures,
while maintaining fiscal sustainability and financial sector
stability, to “significantly raise” global growth and achieve
its aim of increasing collective GDP in the next five years.

“To achieve this we will take concrete actions across the
G-20, including to increase investment, lift employment and
participation, enhance trade and promote competition, in
addition to macroeconomic policies,” the officials said.